Title: Chapter 20 The Effects of Government Farm Programs
1Chapter 20 The Effects of Government Farm
Programs
- Presented by
- Josh Morgan and
- Kristin Mackie
2Overview
- The objective of this chapter is to describe the
major effects of government programs in
agriculture as a whole - Farm Programs and related expenditures are
classified into several broad categories and the
major winners and losers in each category are
identified. -
3Programs That Increase Product Prices To Farmers
- Product prices may be increased by decreasing
supply or by increasing demand. (graph 20.1
pg.305) - Programs may reduce supply in a number of ways,
depending on the specific nature of the
particular program. - Production controls reduce the supply of farm
products, thereby increasing prices to farmers. - Various domestic and foreign food assistance and
nutrition programs increase the demand for farm
products through government purchases, food
subsidies, and export subsidies, thereby
increasing product prices.
4Farm Bills
- The 1996 farm bill eliminated production controls
for wheat, rice, cotton, feed grains, and sugar - The 2002 farm bill dismantled the system of
peanut marketing quotas, and in October 2004 the
tobacco program was eliminated. - The supply of farm products is also reduced by
restrictions on imports of price-supported
products, which were imposed to prevent consumers
from consuming lower-priced imported products - The results is to reduce supply and to increase
product prices to farmers. Government purchases
of farm products increase demand and product
prices (graph 20.2 pg. 306)
5Food Assistance and Nutrition Programs
- Various food assistance and nutrition programs
increase the demand for farm products through
government purchases, food subsidies, and export
subsidies which increases product prices. - Price supports of milk are are implemented
through government purchases of manufactured milk
products. - Food stamps, school lunches, and other assistance
programs increase the demand for farm products by
subsidizing food purchases. - A wide range of domestic and foreign aid programs
continue to be important in maintaining the
demand for U.S agricultural products.
6International Agreements
- International grain agreements for five and four
year periods (made with China and Russia) were
designed to stabilize prices and to increase
overall demand for U.S grain. - The agreements specified a range of grain exports
to these nations each year at market prices. - The agreements may, increase the demand for U.S.
farm products to some extent.
7Programs that reduce prices
- Government subsidies for agricultural credit and
electric power, conservation of land and water
resources (including flood control, irrigation,
and land reclamation),and research and extension
services reduce farm production costs, increase
output, and decrease produce prices. (graph 20.3
pg. 307) - Subsidized credit provided by FSA (Farm Service
Agency), for example adds to total resources in
agriculture by providing more credit than would
be available at competitive market rates and
terms - Research and extension activities reduce per unit
costs and increase total farm output.
8NRCS
- Natural Resource Conservation Services provides
cost to farmers to carry out conservation and
environmental practices and is also involved in
the development of soil and water conservation
programs. - Subsidized soil conservation and research
activities tend to increase production in the
long run, whereas irrigation and floodwater
control provide immediate increases in output.
9Department of Interior Water and Power Subsidies
in the West
- Irrigation is highly important to agricultural
production in the West, and water is frequently
priced to farmers below its value in
nonagricultural uses. - The farmers in the west receive a majority of
their water supply through the Bureau of
Reclamation. - Irrigation systems also use artificially
low-priced electricity produced by federally
funded dams to pump groundwater for irrigation.
Approximately 150,000 farms benefit from federal
water projects The value of irrigation for a 160
acre farm in CA, my be in excess of 100, 000
10Agricultural Production in the West
- Production in the west has been significantly
increased through power and water subsidies. - Without irrigated water CA would be relatively
unimportant in agricultural production. - CA is the leading agricultural state in the
United States. - The water and power subsidies in the west not
only distort the geographical pattern of
agricultural production within the U.S., but it
also increases the scarcity of water for
recreation and urban uses in the west.
11Net Effects Who Wins? Who Loses?
- Because some programs increase product prices
received by farmers at the same time that other
programs decrease prices, some of the
expenditures are offsetting. - Although 38 billion was spent on farm programs
that increased farm product prices almost
one-third as much was spent on programs that
decreased farm product prices.
12Consumers and Taxpayers
- Because of farm programs (many comparable to the
New Deal) prices of sugar, milk, fresh oranges,
and a number of other products are higher then
they would be without the programs. - U.S. consumers pay for, and support these
programs through higher prices on goods and
through higher taxes.
13Owners of Specialized Resources
- Within the agricultural sector, owners of land,
allotments, and other specialized resources are
the biggest gainers from farm programs. - In the case of the tobacco price support program,
for example, the market value of the right to
produce often exceeds 1,000 per acre, per year. - Some gains are achieved through political efforts
which consists of lobbying and political
contributions. - Normally the owners of land and producion rights
at any given time are not the same people who
received the windfalls when the programs were
initiated
14Farmers as Producers vs. Farmers as Asset Owners
- The distribution of gains between producers and
asset owners depends on how quickly the expected
benefits or costs of program changes are
incorporated into asset values. - Many owners of land and other farm assets are not
farmers.
15Labor vs. Other Specialized Resources
- Farmers as owners of specialized skills benefit
from programs to assist agriculture. - The gains from government programs that reduce
input prices or increase product prices are
incorporated into higher market prices of land
and other assets if property rights are well
defined and assets can be bought and sold. In
such cases the farmers wealth increases as a
result of the increases in asset values. - Asset value is based on the expected contribution
during the contracted time period. The asset
owner receives an increased return each year as
long as product price remains higher.
16Farm Operators and Farm Labor
- Price supports and subsidized inputs provide
incentives for increased agricultural production,
but competition for labor and entrepreneurial
skills in other sectors tends to equate returns
throughout the labor market. - The supply of labor in agriculture is highly
responsive to changes in wage rates - Changes in product prices and the demand for
labor result mainly in changes in farm employment
rather than in changes in returns to farm labor.
(figure 20-4 pg. 311)
17The effects of price support programs on the
market for farm labor
- Some farm programs increase the demand for labor
whereas others decrease the demand for labor. - An increase in product price, all other things
remaining constant, will increase the quantity of
output supplied, which will (typically)increase
the demand for labor. - Subsidized credit and tax preferences in
agriculture reduce the cost of capital relative
to labor to labor and increase the rate of
substitution of capital for labor, thereby
reducing the demand for farm labor.
18Price Support Programs
- The effects of subsidized credit, conservation,
research, and education programs that reduce cost
and increase supply vary widely between farm
operators. - Programs that increase technology, innovators
gain in the short run, whereas those who adopt
the technology later benefit little because of
the increases in output and reduction in product
prices.
19Government Employees
- Government employees gain from farm programs the
of USDA employees increased more than four
times from 1929 to 1999 even as the of farms
and farmers decreased at a dramatic rate. - USDA activities expanded into rural development,
rural recreation, nutrition, and other areas
20Resource Allocation
- Resources are allocated to various uses on the
basis of market prices - Land when allocated by market forces, is based on
the expected returns. Land has the highest
expected use in agriculture because it is used
for farming and housing - Prior to the 1996 farm bill production control
programs in agriculture diverted some of the
worlds most productive farmland into
nonproductive uses through various programs
21Policy Implications
- The largest 8 of farms received 47 of payments
to farmers in government farm programs. - Farm programs are necessary to stabilize
agricultural markets, stabilization for farm
programs is weak, much of the instability in the
U.S. agriculture since WWII has been caused by
government policies including fiscal policies,
subsidized credit, and trade restrictions.
22Protectionism and the Deregulation of U.S.
Agriculture
- Programs like NAFTA and WTO were created to
reduce and eliminate import restrictions. - The FAIR act provided farmers with greater
flexibility in making planting decisions than
under previous farm bills. - The 1996 and 2002 farm bills continue the long
standing practices of transferring income from
the non farm sector to the farm sector or the
U.S. economy
23THE END